BL Explainer

Explainer: All about MSP and the demand for a legal backing

Subramani Ra Mancombu | | Updated on: Nov 30, 2021

With mountains of foodgrains storage, the Centre now focus on nutri-cereals, oilseeds and pulses to avoid massive forex outflows.

What is MSP? Why was it introduced?

MSP is the minimum support price. It was first introduced in the 1965-66 season (July-June) for wheat, and it now covers 23 crops. It is announced weeks ahead of the Kharif and Rabi sowing seasons. It was introduced to incentivise farmers to grow food crops when India faced a shortage of foodgrains. Government agencies such as the Food Corporation of India use the MSP to procure wheat and paddy for the central pool. In the case of maize, cotton, pulses and oilseeds, the Centre steps in to procure them when their prices rule far below the MSP and farmers resort to distress sale.

In recent years, the focus of MSP has been to encourage farmers to grow nutri-cereals, oilseeds and pulses rather than wheat or rice. The reason is India has mountains of foodgrains while spending a considerable amount of foreign exchange in importing edible oils and pulses. Last oil year (October 2020-September 2021), India spent ₹1.17-lakh crore importing edible oils to meet domestic demand.

Do all farmers benefit from MSP?

No, all farmers do not benefit from MSP. During the monsoon session, the Government told Parliament that a little over 14 per cent of land-owning farmers benefit from MSP. It pegged the number of MSP beneficiaries at 2.1 crore during 2020-21.

Even in paddy and wheat, the largest procured commodities under the MSP programme of the Centre, not all farmers across the country benefit. For example, the MSP for maize is 1,870 a quintal this season, but in most growing centres, prices are ruling lower. Similarly, MSP for rice and wheat is realised only when farmers sell their produce to government procurement agencies.

But there are examples of crops ruling much higher than MSP too. Prices of cotton, oilseeds and pulses have been ruling higher than the MSP this year. In the case of cotton and oilseeds such as soyabean, prices zoomed to record highs in line with the trends in the global market.

Why is MSP in the news today?

MSP is currently in the news as a section of the farmers, who protested against the farm reform laws passed by Parliament in September last year, demanded a legal guarantee. They have now made this their main demand to withdraw their protest after Prime Minister Narendra Modi announced the repeal of the farm laws. The Bill to repeal the farm laws was cleared by the Parliament on the opening day of the Winter Session on Monday. The farmers are demanding a legal guarantee as some of the Opposition parties have raised the fear that the objective of the farm reforms was to end the MSP system. The Centre has, time and again, made it clear it has no such intention. During the last couple of years, it has been making record procurement of rice and wheat at MSP, which farmers refuse to look at.

Will a legal backing for MSP, a statutory MSP, solve all the ills that plague the agri sector?

No, remunerative price or MSP is only one part of the problems farmers face. Farmers face many other issues other than price, which itself is not guaranteed given the influence of politicians and cartels in mandis . They lack information on which crop to grow, when to sow, apply plant nutrients and which pest is attacking their crop. Farmers are also short of post-harvest technologies to ensure a better shelf life for their produce. In addition, they do not get adequate facilities to irrigate their lands, with nearly 50 per cent of the land being rain-fed and lacking ample warehouses to store their produce at the village level, besides proper roads to connect them to the mandis .

Legal backing for the MSP could also lead to the danger of the trade keeping away from places where the law is implemented vigorously. For example, when Punjab said it would make MSP legal and binding, wheat traders said they would keep off the state to avoid trouble for themselves.

How are the crops that are outside MSP faring?

Vegetables, fruits, flowers, spices and plantation crops are among the crops not covered by MSP. Their prices fluctuate on seasonal demand and supply. These crops are also more vulnerable to weather changes such as floods and droughts. However, farmers have been raising their production each year.

Interestingly, the Centre has fixed a fair and remunerative price (FRP) for sugarcane with provisions for the States to fix a higher price called State advised price. Till now, sugarcane farmers have been paid this without fail, though their dues get delayed. Last two seasons (October 2019-September 2021), the Centre spent over ₹10,000 crore as incentives to export sugar so that the dues to farmers are cleared quickly.

Published on November 30, 2021
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